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Where Taxpayers and Advisers Meet

Income tax on recovered rent arrears

rockingolfer
Posts:2
Joined:Thu Jan 13, 2022 6:00 pm
Income tax on recovered rent arrears

Postby rockingolfer » Thu Jan 13, 2022 6:35 pm

Hi everyone,

I rent out a small number of properties and the net income from these normally puts me a little way into the higher rate tax band. Due to COVID, a couple of my tenants have fallen into arrears, causing my net income for the 2020-21 tax year to fall substantially short of the higher rate threshold, so I’ll be liable only for basic rate tax. Although this may seem superficially good news, I envisage a future sting in the tail.

In due course, I fully expect my tenants to make good their arrears but, when they do, that will move me back into the higher rate tax band. That means for part of the arrears being recovered, I’ll be liable for higher rate tax on income that would have been taxed at basic rate if it had been paid when originally due to me.

Is my understanding of this situation correct, or are there any legitimate ways to mitigate this problem?

Thanks in advance for any advice.

pawncob
Posts:4830
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: Income tax on recovered rent arrears

Postby pawncob » Thu Jan 13, 2022 8:37 pm

Rental income is a "business" so accrue the unpaid rents.
With a pinch of salt take what I say, but don't exceed your RDA

rockingolfer
Posts:2
Joined:Thu Jan 13, 2022 6:00 pm

Re: Income tax on recovered rent arrears

Postby rockingolfer » Thu Jan 13, 2022 8:53 pm

I may be mistaken but I was under the impression that, since 2017, rental income had to be accounted for on a cash basis, rather than an accrued basis, unless total income exceeds £150K, which mine doesn't.

darthblingbling
Posts:455
Joined:Wed Aug 02, 2017 9:09 pm

Re: Income tax on recovered rent arrears

Postby darthblingbling » Thu Jan 13, 2022 9:32 pm

You can elect for accrued. Might need to stick with it tho


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